In this article, you will get all the information regarding Silicon Valley Bank: HSBC rescues SVB UK but market turmoil continues – business live
Full story: HSBC to buy Silicon Valley Bank UK for £1 in government rescue deal
Kalyeena Makortoff
If you’re just tuning in….the UK government has struck a last-minute deal for HSBC to buy Silicon Valley Bank’s UK operations.
The move, announced at 7am, will save thousands of British tech startups and investors from big losses after the biggest bank failure since 2008, my colleague Kalyeena Makortoff writes.
The takeover will override the Bank of England’s initial decision to place SVB UK into insolvency, after a run on the lender that was originally sparked by fears over the a multibillion-pound shortfall on the US parent company’s balance sheet.
The US bank was closed and its assets seized by authorities on Friday.
The acquisition – which only cost HSBC £1 – followed overnight talks between Downing Street, the Bank of England and HSBC bosses including the chief executive, Noel Quinn, as authorities rushed to protect the finances of SVB UK’s 3,500 customers.
Those customers included venture capital investors and hundreds of tech startups that feared they would go bust if their deposits were wiped out.
Here’s the full story:
Key events
First Republic Bank slides over 50% in premarket amid SVB fallout fears
Shares in another US lender, First Republic Bank, have more than halved in pre-market trading.
That’s despite its efforts to try to quell concern about its liquidity after the failure of Silicon Valley Bank.
First Republic said in a statement late on Sunday that it had more than $70bn in unused liquidity to fund operations from agreements that included the Federal Reserve and JPMorgan Chase & Co.
Today, we announced a further strengthening and diversification of our liquidity position. This increase in available liquidity further reinforces the safety and stability of First Republic. We are grateful to our clients for their continued support. https://t.co/eucaVOEjoy
— First Republic (@firstrepublic) March 13, 2023
It said:
“The additional borrowing capacity from the Federal Reserve, continued access to funding through the Federal Home Loan Bank, and ability to access additional financing through JPMorgan Chase & Co. increases, diversifies, and further strengthens First Republic’s existing liquidity profile.
However, its shares are down almost 60% in pre-market trading at $34.50, having dropped 15% on Friday to $81.76.
First Republic slumps more than 60% in US premarket trading as measures taken by US authorities to calm investor concerns failed to provide relief to the regional lender’s shares. (BBG) pic.twitter.com/c8zU1gucEd
— Jimplas-Capital Management (@JimplasE) March 13, 2023
“It’s down to a sharp loss of shareholder confidence,” says Susannah Streeter at Hargreaves Lansdown to Reuters, adding:
The banks aren’t being bailed out, but depositors are, and worries about the viability of First Republic are growing… It’s highly likely that there has been a rush of more depositors withdrawing money.
Ipek Ozkardeskaya, senior analyst at Swissquote Bank, explains:
SVB’s flash crash raised questions that other similar local banks in the US could also experience liquidity issues and may not be able to pay their depositors back, unless they also start selling their probably loss-making portfolios.
So, the likes of First Republic Bank, PacWest Bancorp and Signature Bank [which was closed by regulators last night] suffered heavy losses on Friday.
Across Europe, big banks pulled indices down on Friday, as well – even though they are not expected to have similar liquidity issues as the Silicon Valley Bank. Most big banks have a diversified client base and more importantly don’t have the same exposure to tech startups, which are extremely rate sensitive.
The contagion risk remains for small banks with highly rate-sensitive clients, but the US authorities now step in to avoid contagion. They said that SVB depositors could access their money today.
Stock markets slide as market turmoil continues
European stock markets have made a very weak start to the new week, as the turmoil which began last week continues to grip the markets.
That’s despite US regulators protecting Silicon Valley Bank deposits and trying to shore up the financial system last night.
AJ Bell investment director Russ Mould says:
“Despite the best efforts of governments and regulators, the market was still very edgy on Monday as investors considered the fallout from SVB’s collapse.”
The FTSE 100 index has tumbled by 153 points, or 2%, to 7595 points. That’s its lowest level since the first week of January, and around 6% below last month’s record highs.
Financial stocks are among the fallers in London, with Standard Chartered dropping 5%, investment manager Abrdn off 4.3%, and Barclays losing around 4.5%.
Europe’s STOXX bank index has dropped by 5%, having shed 3.78% on Friday, leaving it on track for its biggest two-day fall since Russia began its invasion of Ukraine in February 2022.
Mould explains:
“There’s plenty to worry about whether it be the conflict in Ukraine, inflation, rising interest rates and now a potential banking crisis has been added to the mix. Little surprise people are feeling a bit spooked.
“For now, the panic which set in late last week appears to have been contained but whether the market can regain the confidence which saw the FTSE 100 hit a record high earlier this year remains to be seen.
“The funding environment for technology and start-up companies is certainly looking a lot less healthy and focus may start to turn to the asset managers and private equity funds which are invested in these firms.”
Across Europe, Germany’s DAX share index has lost 2.9% while Italy’s FTSE MIB has slumped by4.7%.
Martha Lane Fox, president of the British Chambers of Commerce, said the failure of Silicon Valley Bank is “very different” from the collapse of Lehman Brothers in 2008.
She told BBC Radio 4’s Today programme this morning that SVB UK has played an important role helping to grow the technology and life sciences industry, and the wider economy:
“It was a banker that provided extra careful services for the sector that is growing very rapidly and is demanding attention from all of us because it’s going to be a vital part of how we position ourselves in the future and our economy’s strength in the future.
“You could argue it was a single point of failure, or you could argue that it was enabling this patchwork of incredible businesses to grow quickly.
This is not a collapse because of risky management, she insisted (although SVB management have been criticised for not protecting itself better against rising interest rates).
Lane Fox adds:
In many ways it’s not similar to the banking collapse in 2008 or Lehman’s collapse or anything like that.”
Krista Griggs, head of financial services & insurance at technology giant Fujitsu, says HSBC’s decision to buy Silicon Valley Bank UK is ‘a welcome move’:
“The UK technology industry is thriving and it requires a commitment to long-term success if the country is going to achieve its ambition of becoming a scientific and technology superpower.”
“HSBC’s fast response is a welcome move that will ensure continuity for businesses at risk from the collapse of Silicon Valley Bank. It shows commitment to innovation and I expect to see more involvement from traditional banks as they look to provide stability during disruption – as well as further union between them and FinTech companies as this sector continues to rapidly evolve.
There has been a flurry of UK tech companies telling the City of London this morning the details of their exposure to Silicon Valley Bank UK, or reassuring that they’re not a customer.
Diaceutics, technology and solutions provider to the pharmaceutical industry, asked for its shares to be suspended on the London AIM market today.
It says that most of its cash was held at SVB UK, and it was unable to access those funds in recent days.
In a statement released just as news of the HSBC rescue deal broke, Diaceutics says:
As of 9 March 2023, the Company held £22.2m in cash and cash equivalents (31 December 2022: £19.8m). Of this balance, approximately £22.0m was held in SVB accounts, an ongoing requirement of its Revolving Credit Facility, with the majority (£19.8m) held at SVB UK.
Despite immediate efforts by the Company to move available funds to other banks before SVB was closed, these transactions remain pending and the Company has been unable to access any of its funds held by SVB.
This is a rapidly evolving situation and the Board remains hopeful that the funds held with SVB will become available, however it recognises that there is a risk that this may take time to resolve and full or partial recovery above the insurance limits may not materialise.
Clearly the situation did indeed evolve rapidly, with HSBC agreeing a rescue deal which means depositors money is safe.
Naked Wines says it has £14m in “a cash sweep account” under which SVB acts as custodian for 3rd party money market funds, and a $60m asset backed credit facility, which is syndicated 50-50 between SVB and Bridge Bank.
But less than £600,000 of its cash had potentially been risk at SVB accounts in the USA and UK, before authorities took action to protect depositors.
Naked Wines’ CEO Nick Devlin said day to day operations were unaffected, as Naked has £17m of cash immediately available, adding “we don’t expect to incur any loss as a result”.
Global review company Trustpilot said SVB UK was its principal banking partner, but it still had alternative banking relationships that allow it to continue to operate.
Trustpilot says it had $36m held in SVB UK, of which $18m was “currently in transfer out of SVB UK but pending confirmation”.
It also had $19m cash on deposit with another bank, and $4.5m guaranteed by the US Federal Reserve following their announcement last night (that US SVB customers will get their money in full).
Several firms released statement saying they had no exposure to Silicon Valley Bank, including e-commerce platform THG, IT firm Instem, and biotech company Roquefort Therapeutics.
Central banks may be less willing to raise interest rates higher, following the crisis at Silicon Valley Bank.
Policymakers could now be warier of breaking something else in the financial system, by tightening monetary policy much further.
That’s because the steep increases in borrowing costs over the last year or so have pushed up the yield (or effective interest rate) on government bonds and mortgate-backed securities, which lowers their price.
That lead to SVB suffering a $1.8bn loss when it sold its $21bn package of securities last week, following an increase in customer withdrawals.
Investors have cut their expectations for future interest rate rises on both side of the Atlantic.
For example, another quarter-point rate rise by the Bank of England this month to 4.25% is only seen as a 66% chance this morning, from an almost certainty last week. Rates are no longer expected to rise above 4.5% this year.
Expectations of future interest rate rises in the US have also been dampened, having jumped last week after hawkish talk by Federal Reserve chair Jerome Powell.
Lee Hardman, senior currency analyst at MUFG Bank, explains:
The Silicon Valley Bank crisis has taken the wind out the US dollar’s sails by highlighting risks associated with rising rates.
The run on deposits forced SVB to realize losses on their securities portfolios that triggered a further loss of confidence in bank. It has made market participants more aware again that the Fed will eventually break something if it keeps raising rates.
The pound has gained over half a cent against the US dollar this morning, to $1.21.
Dom Hallas, executive director of Coadec, a lobby group representing UK tech start-ups, says today’s deal has “saved hundreds of the UK’s most innovative companies”.
The Government deserves huge credit. From the very top, to HM Treasury who understood the challenge and gripped it, to the PRA, to the huge number of civil servants who have likely not slept since Friday. They have saved hundreds of the UK’s most innovative companies today.
— Dom Hallas (@Dom_Hallas) March 13, 2023
Shadow chancellor Rachel Reeves MP has welcomed the news that Silicon Valley Bank UK has been rescued, saying:
“That SVB has a buyer will be a relief to the entrepreneurs and the thousands of people working in the tech and start-up sectors, who woke up facing huge uncertainty this morning.
Tech and life sciences are vital to getting our economy growing again.”
Full story: HSBC to buy Silicon Valley Bank UK for £1 in government rescue deal
Kalyeena Makortoff
If you’re just tuning in….the UK government has struck a last-minute deal for HSBC to buy Silicon Valley Bank’s UK operations.
The move, announced at 7am, will save thousands of British tech startups and investors from big losses after the biggest bank failure since 2008, my colleague Kalyeena Makortoff writes.
The takeover will override the Bank of England’s initial decision to place SVB UK into insolvency, after a run on the lender that was originally sparked by fears over the a multibillion-pound shortfall on the US parent company’s balance sheet.
The US bank was closed and its assets seized by authorities on Friday.
The acquisition – which only cost HSBC £1 – followed overnight talks between Downing Street, the Bank of England and HSBC bosses including the chief executive, Noel Quinn, as authorities rushed to protect the finances of SVB UK’s 3,500 customers.
Those customers included venture capital investors and hundreds of tech startups that feared they would go bust if their deposits were wiped out.
Here’s the full story:
Jeremy Hunt says SVB UK rescue was necessary to protect UK tech
Chancellor Jeremy Hunt has said the rescue of Silicon Valley Bank’s UK arm by HSBC this morning was necessary to help protect some of Britain’s most important technology companies.
Speaking to reporters, he says (via Reuters):
“We were faced with a situation where we could have seen some of our most important companies, our most strategic companies, wiped out and that would have been extremely dangerous.”
Asked about HSBC’s role, Hunt said the Treasury had been neutral as to what the solution for SVB’s UK arm was, and that his priority was to avoid using British taxpayer money.
“We were looking at all options and we needed to be sure that if the sale didn’t happen, we had other solutions ready.
Hunt also repeated reassurances that the situation with SVB’s UK arm did not pose any risk for Britain’s financial system.
“The UK banking system is extremely secure, it’s well capitalised.”
The Bank of London, the UK clearing bank that also made a rescue bid for SVB UK last night, has criticised the sale to HSBC as a “missed opportunity”.
It said it was “great news that a speedy solution” has been found for Silicon Valley Bank UK Limited, but added:
“For many, this will be seen as a missed opportunity to support competition and innovation.
“It cannot be right that once again the heritage banks that have provided a poor service to UK entrepreneurs over many years benefit from their already dominant position.
“Britain needs better. For our part, we at The Bank of London stand ready to serve the entrepreneurial community of the UK.”
The UK government will be extremely relieved that HSBC has stepped in to rescue SVB UK this morning, says Susannah Streeter, head of money and markets at Hargreaves Lansdown:
After a number of offers from smaller banks, HSBC has agreed to scoop up the beleaguered UK arm of SVB, which should end the nightmare thousands of tech firms had been experiencing over the past few days.
HSBC shareholders may have some concerns about the bank snapping up assets which have been under such a cloud of uncertainty, particularly the exposure to bonds, but HSBC says it expects a gain to arise from the acquisition.
This will be hugely welcomed by the government, given the looming crisis risked overshadowing Budget Day, as a big tech sector bailout would not have been a good look when millions have been told there is little extra money to ease the cost-of-living crisis.
HSBC’s acquisition of Silicon Valley Bank UK for £1 is a welcome development for SVB’s depositors and the wider banking system, says Victoria Scholar, head of investment at interactive investor.
It means that SVB UK will avoid insolvency proceedings and its customers will be able to access deposits and banking services as normal from today. European markets look set to open higher as a crisis in the banking sector is averted for now.
She says Wall Street is set to rally today after US authorities guaranteed all deposits after Silicon Valley Bank collapse yesterday, helping to ease fears of a banking crisis.
Meanwhile in the US, regulators have approved plans to create a backstop for SVB depositors and financial institutions, providing them with access to their funds from today. Plus the Federal Reserve has announced an emergency lending facility to support US banks and reduce wider contagion. This has helped to lift US futures after Wall Street closed sharply lower on Friday with the Nasdaq down over 1.75% and the Russell 2,000 down almost 3%.
Scholar also explains how the collapse was caused:
The collapse was triggered after SVB crystallised a $1.8 billion loss on its $21 billion bond portfolio, spooking investors and customers, and sparking a run on the bank.
The tech sector lender took a view on interest rates last year and miscalculated the expected level of rate hikes from the Fed, landing the lender with heavy losses.
On top of that, the rising cost of funding and volatile financial markets which caused a dearth in IPOs made life more difficult for many of SVB’s tech start-up customers, who began withdrawing deposits, putting pressure on SVB.”
Eileen Burbidge: it’s incredibly welcome news after a chaotic weekend
Eileen Burbidge, a partner at the tech venture capital firm Passion Capital, says the deal with HSBC is a ‘wonderful solution’.
Burbidge tells Radio 4’s Today programme:
It brings to the close a really chaotic weekend.
Burbidge says the collapse of Silicon Valley Bank was “extremely consequential for the tech sector”
The risk is thinking that the tech sector is its own isolated or niche ecosystem, when in fact now technology underpins all the UK economy and is involved in everything from transport to food supply, to healthcare…and everything we rely on for our daily lives.
The news that deposits are going to be guaranteed, and that banking services have been restored as of today, is obviously incredibly welcome.
Q: But what about the moral hazard question? Won’t the sector be encouraged to do risky things because they think they’ll always be bailed out?
Burbidge says not. She argues that neither SBV UK nor the UK tech sector were doing anything particularly risky before regulators took action last Friday.
SVB UK was held to the same standards as every other bank in the UK, she insists, and this morning’s sale to HSBC shows that the bank had a strong asset base.
What we had was a classic run on the bank, and actually the biggest run on a bank in history, depending on how you define it, based on how quickly funds were moved out of that bank between Thursday and Friday.
[Reminder, that bank run began when parent company SVB Financial Group announced it had made a $1.8bn loss on the sale of $21bn of securities from its portfolio, meaning it would sell $2.25bn of new shares to shore up its finances.]
Bank of England: all depositors’ money with SVBUK is safe
The sale to HSBC this morning has been taken to “stabilise SVBUK”, says the Bank of England.
The UK central bank says the deal will ensure the continuity of banking services, minimise disruption to the UK technology sector and support confidence in the financial system.
Importantly, the Bank of England and HM Treasury can confirm that all depositors’ money with SVBUK is safe and secure as a result of this transaction.
That will be a massive relief for tech companies, who feared an ‘existential threat’ to their businesses if they had lost their funds at SVB UK.
The BoE add that the deal with HSBC means SVB UK will not now be put into insolvency. It says:
SVBUK’s business will continue to be operated normally by SVBUK. All services will continue to operate as normal and customers should not notice any changes.
Customers can continue to contact SVBUK through the usual channels and borrowers should make any loan repayments to SVBUK as normal. SVBUK staff remain employed by SVBUK, and SVBUK continues to be a PRA/FCA authorised bank.
Today’s announcement supersedes the Bank’s 10 March statement that, absent any meaningful further information, it intended to apply to the Court to place SVBUK into a Bank Insolvency Procedure. Given the emergence of a credible purchaser for SVBUK the Bank has determined that using its resolution powers for stabilising failing banks is appropriate.
No other UK banks are directly materially affected by these actions, or by the resolution of SVBUK’s US parent bank. The wider UK banking system remains safe, sound, and well capitalised.
Hunt: Deposits will be protected, with no taxpayer support
Chancellor Jeremy Hunt says customer deposits at Silicon Valley Bank UK will be “protected, with no taxpayer support” through the rescue deal with HSBC.
Hunt adds:
I said yesterday that we would look after our tech sector, and we have worked urgently to deliver that promise.
This morning, the Government and the Bank of England facilitated a private sale of Silicon Valley Bank UK to HSBC
Deposits will be protected, with no taxpayer support
I said yesterday that we would look after our tech sector, and we have worked urgently to deliver that promise
— Jeremy Hunt (@Jeremy_Hunt) March 13, 2023
HSBC: SVB UK customers are backed by our ‘strength, safety and security’
Noel Quinn, HSBC Group CEO, is welcoming Silicon Valley Bank UK customers.
He says they can continue to bank as usual, safe in the knowledge that their deposits are backed by the strength, safety and security of HSBC.
Quinn explains:
“This acquisition makes excellent strategic sense for our business in the UK. It strengthens our commercial banking franchise and enhances our ability to serve innovative and fast-growing firms, including in the technology and life-science sectors, in the UK and internationally.
We welcome SVB UK’s customers to HSBC and look forward to helping them grow in the UK and around the world. SVB UK customers can continue to bank as usual, safe in the knowledge that their deposits are backed by the strength, safety and security of HSBC. We warmly welcome SVB UK colleagues to HSBC, we are excited to start working with them.”
HSBC acquires Silicon Valley Bank UK
Newsflash: HSBC UK Bank plc is acquiring Silicon Valley Bank UK Limited (SVB UK) for £1, after a weekend of frantic negotiations by UK officials.
In a statment to the City, HSBC says the transaction “completes immediately”. The acquisition will be funded from existing resources.
The bank adds:
As at 10 March 2023, SVB UK had loans of around £5.5bn and deposits of around £6.7bn. For the financial year ending 31 December 2022, SVB UK recorded a profit before tax of £88m. SVB UK’s tangible equity is expected to be around £1.4bn. Final calculation of the gain arising from the acquisition will be provided in due course.
Silicon Valley Bank: HSBC rescues SVB UK but market turmoil continues – business live
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